Forex Money

Here is a simple but very effective way to trade the news - it can be tailored to an individual trader’s style and risk profile as required.
Using a 15 minute chart, wait for the news release, and do nothing for the remainder of the 15 minute bar immediately following.
In this example chart, which shows Cable (GBP/USD) at the time of the Weekly Jobless claims figure -? announced on Thursday mornings at 8:30 EST, we see that the 8:30 bar (highlighted) shows some volatility as the market makes its initial reaction.
At the start of the next 15 minute bar (8:45 in this example), we simply go Long if the previous bar closed Up (i.e. was a blue candle) or Short if the previous bar closed Down (i.e. was a red candle).
The idea is that by the first 15 minutes, the market has had time to digest the information and make up its mind about a direction.
The final direction after this 15 minute period tends to carry through in at least the next bar.

In the example here, we would have taken a short at the start of the 8:45 bar, with a tight stop - we are looking for quick follow through so if that doesn’t happen we want to be out with minimum loss.
Exiting point for a profit is discretionary; one possible method is to use a break of the previous bar, which in this example would have netted us a quick low-risk 25 pips.
If we traded other currency pairs at the same time, clearly we could have taken more pips out of the market.

There is one caveat to this trade: if the initial 15 minute bar at the time of the news release moves a long way in one direction very quickly (more than 100 pips, say),
we would walk away and leave the trade - it’s already made the move and further follow through is unlikely.
This is a simple setup, but a remarkably effective one.
To get the best from it, a trader should ideally be watching several currency pairs - not all of them will follow through
- so watching more gives a better chance of picking up some big winners.

This entry was posted on Tuesday, April 8th, 2008 at 11:48 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.